The government would review a list of priority investment activities for the second comprehensive tax reform package, possibly limiting the sectors which would receive tax perks to “what really matters,” a top official said.
The list would be similar to the Investment Priorities Plan (IPP) under the Board of Investments (BOI), but with a few substantial differences, according to Finance Undersecretary Karl Chua.
To recall, the IPP is a list of preferred business activities in line with inclusive growth that would receive fiscal and non-fiscal perks.
Updated every three years, the current list covers ten government-preferred business activities including mass housing, healthcare services such as drug rehabilitation centers, and manufacturing.
This, however, is bound to change under the second tax reform package proposed by the Department of Finance (DOF). Chua presented the proposal during the EU-Philippines Business Tax Forum on Tuesday.
Under the DOF proposal, the corporate income tax would gradually lessen to 25 percent by 2022. However, its reduction would be conditional to how many incentives the government would be stripping off.
More strategic
It remains to be seen whether or not the SIPP would have the same list of business activities as that of IPP, but Chua clarified that the review would make sure that the sectors in the new list would be “more strategic.”
“For instance, [there would be a] cost benefit analysis that can really determine which sectors provide the best benefits or spillover to the country,” he told reporters at the sidelines of the forum.
He said BOI would craft the SIPP, but President Rodrigo Duterte would be allowed to grant incentives to economic activities outside that list. When asked to if the current IPP is deficient in some form, he said he does not want to comment.
“I don’t want to comment because I haven’t seen the cost benefit [analysis] for them. So let’s do a cost benefit [analysis] and see if they’re really a driver for growth in the next three years. If they are, then they remain. If they are not, then they are possibly the least priority,” he said.
Differences from IPP
In a nutshell, the SIPP would be different because it would offer reduced tax incentives to a list of sectors that benefit the economy.
Income tax holiday (ITH), would only last up to five years with no extensions except for customs duty of capital equipment. Under current rules, the ITH lasts four to six years depending on the kind of project, with the possibility of being extended for another year.
Moreover, the SIPP would be the basis in providing perks not only for companies registered under BOI, but to all other investment promotion agencies such as the Philippine Economic Zone Authority (Peza).
Asked for comment, Trade Assistant Secretary Rafaelita Aldaba told reporters also on Tuesday that the SIPP would be more sector-specific.
“You probably couldn’t just put shipbuilding there [as a preferred investment]. You need to be more specific on which ships you would be incentivizing. That’s probably one major difference,” she said, noting that they would be preparing the list in anticipation of the second tax package, which is intended to take effect January next year. /muf